Whether you love it, hate it, think it goes too far or not far enough, the gears of ObamaCare are grinding along, theoretically to be fully implemented January 1, 2014.
The politics of The Patient Protection and Affordable Care Act notwithstanding, the law illustrates quite clearly the difficulty—and indeed the folly—of massive, top-down re-organizational efforts governments around the world like to employ. Human beings are dynamic creatures that respond to stimuli in order to maximize their own benefits. However carefully politicians craft the language of their regulations, people find remarkably easy ways to sidestep such obstacles, often to the detriment of the economy and the grand schemes of politicians.
ObamaCare induces businesses into providing health care for its employees by issuing a fine on those that don’t. This penalty does not, however, apply to businesses that have fewer than 50 employees. Recognizing a loophole when they see one, many business owners will likely take the easy way out and simply refuse to expand their company past the dreaded 50-employee barrier.
This phenomenon has already been seen in France, where once a company has 50 or more employees the business is obligated at great cost “to establish a committee on health, safety and working conditions and train its members.” This obligation is so expensive to business owners that many choose to deliberately limit themselves to only 49 employees, only crossing the threshold when it’s clear that having x more employees outweighs the deleterious effects of further regulation.
The National Bureau of Economic Research recently performed a study analyzing the effects of such regulatory burdens on French companies. France imposes stringent regulations on companies once they have more than 9 employees; more severe restrictions kick in once businesses have more than 49 employees and again at the 100 mark.
Here’s a graph showing the frequency of French companies by the number of their employees:
The difference between 9-employee and 10-employee companies is dramatic. The drop-off between 49 and 50-employee companies is also plainly evident. This graph zooms in on the data, further illustrating the stark and unnatural reality that there are almost 3 times as many companies with 49 employees than with 50:
Business owners in France routinely discuss their “companies” rather than their singular “company.” As it turns out, it is common practice to maintain several businesses under the 49-employee threshold rather than aggregate them into a single entity. Perversely, the paperwork and bureaucratic red tape involved in starting and maintaining multiple businesses is seen as a better alternative to biting the bullet and hiring that unlucky 50th employee.
The French economy has numerous problems—recently their union work ethic was lambasted by US CEO Maurice Taylor, who accused the French laborers of only working three hours a day-– and their unemployment rate is shockingly high. Struggling to respond to a jobless rate north of 10%, President Francois Hollande has promised to make the economy a priority during his term. It is clear that onerous and arbitrary economic regulations actually damage the economic climate, slowing or even preventing recovery. Lessening or striking them from the books would help revive the economy by simplifying the cost and the process of doing business.
ObamaCare will likely have the same effects on US businesses as France’s strict legislation has had on theirs. Seeking to avoid regulatory oversight, and seeing a perfect opportunity to do so, many businesses will simply refuse to hire that 50th employee and escape from detrimental and unnecessary burdens. Companies have been well aware of the future effects of healthcare legislation since its signing. That likely already accounts for some of their reticence in hiring new workers and why the US unemployment rate stubbornly hovers around 8%.
I am not here to pass judgement on ObamaCare itself or the intentions that lead to its enactment. The point is that regulatory burdens do indeed affect how businesses operate. Companies respond to incentives the same way that individuals do. By drafting these types of regulations, politicians inadvertently (?) help ensure that more people will be left without health insurance because employers are skirting such obligations by refusing to hire new talent. These laws create perverse incentives that make businesses less likely to hire new employees, keeping unemployment up and the economy down.
People are not a monolithic entity and they do not often respond to legislation the way that Washington predicts. As has been proven continuously throughout history—and just as often ignored– the best way to encourage business is to stay out of the way and make it easy to do business.
Laws and policies like ObamaCare and Too Big To Fail muddle the economic waters and contribute to the slow and painful US recovery that the nation now endures. Ending them would be a powerful message that would help unshackle business owners from the capricious laws of Washington and spur the economy on to a real and sustained recovery.